Funds reveal Egypt investments

Some British fund groups made large investments in Egypt in advance of the protests sweeping the country, Fund Strategy analysis reveals.

Civil unrest has spread to Egypt from Tunisia and other countries in the Middle East and North Africa (Mena) region.

Discontent with authoritarian local governments has been exacerbated by a shortage of food supplies and higher prices across the region.

Companies with investments in Egypt in December included Barings, BlackRock, Fidelity, Franklin Templeton, Investec, Schroders and Silkinvest.

The $21.1m (£13.3m) Barings Mena fund held more in Egypt than any other country at the end of December, with a 21.7% position.

The fund’s three top holdings – Orascom Construction, EFG Hermes Holding and Commercial International Bank – were also Egypt-listed.

Silkinvest’s Egypt positions in December were marginally lower than in the Barings fund.

Its African Lions fund held 21.67% in Egypt, its Arab Falcons fund 19.14%, its Silk Road Income fund 12.73% and its Road Frontiers fund 12.53%.

BlackRock has exposure to Egypt in its Frontiers investment trust, but described it as a “very minimal” part of the portfolio – less than the 1.6% it holds in Jordan, for instance.

“The events in Tunisia highlight that there are a number of emerging markets where political risk is largely ignored and hence insufficiently priced by the market, especially in countries where the government has a limited democratic mandate and there are widespread perceived grievances,”  a spokesperson at BlackRock says.

Fidelity also has only a small 1.6% holding in Egypt in its Emerging Europe Middle East and Africa fund. (article continues below)

Franklin Templeton has some exposure through the portfolios of Mark Mobius, its prominent emerging market investor, who says Egypt could represent a buying opportunity if the index goes down further.

Mobius says political reform could unleash a wave of economic activity, especially among Egypt’s large contingent of younger people.

“Social tensions are likely to increase due to strongly rising global food prices”

Investec’s emerging market debt team was more pessimistic on the country, however, although Investec’s equity team had a 17.5% position in Egypt in its Africa and Middle East fund at the end of 2010.

In its January outlook, the emerging market debt team said it would “continue to stay out of the trade” in Egyptian currency and debt.

“This year is a presidential election year, and although the outcome is likely to be determined by the dominant NDP party, it is likely to mean heightened social tensions,” the team said before the protests.

“The fiscal costs via higher subsidies, the exchange rate – Egypt is the world’s largest grain importer – and social tensions are likely to increase due to strongly rising global food prices.”

The $321m offshore Schroder ISF Middle East fund was also underweight the country. It held 8.7% in Egypt at the end of 2010, compared with a weighting in fund’s benchmark index of 9.1%.

“Risks of contagion [from the Tunisia revolt] on the neighbouring region exist, although Egypt is probably the only market in our universe where we have seen any material impact due to some similarities between the countries, for example, high youth unemployment and income disparities,”  a spokesperson at Schroders says.

“However, Egypt has very different political dynamics to Tunisia given the strong alliance between the West and the current regime. Egypt also enjoys a strategic position as a major player in the Middle East peace process. Furthermore, in the case of heightened political unrest, the army in Egypt is also better placed to maintain stability.”